Saturday 27 June 2015

Alexis Tsipras Calls a Referendum

Greek Prime Minister Alexis Tsipras has just called for a referendum in Greece, to be held on Sunday, 5 July. The topic of the referendum will be a “yes or no to the austerity measures proposed by the creditors”.
Essentially, the real question here is “in or out of the Euro”, or even “in or out of Europe”.
This is a canny political move on his part. It is the only way his political party can be absolved of the blame for misleading voters with the “Thessaloniki programme” and for the disastrous record of governance since SYRIZA’s election on January 27th.
But at the same time, it is probably the right move to make. Greece’s creditors have been insisting on exceptionally foolish policy measures. Despite their denials and counterproposals, they have at various points in the negotiation wanted value added tax on electricity, processed foods and tourism to rise to 23%. This is an extremely regressive move, particularly given the fact that Greece has been in recession since 2009, i.e. in economic depression.
I was amused (for lack of a better word) to see Christine Lagarde, head of the IMF, state in an interview that the Greek reform proposals cannot be based “only on tax increases”. That was her rationale for rejecting higher taxes on companies. Instead, the IMF recommended higher consumption taxes, on a population that has seen a 25% reduction in real GDP, a 27% unemployment rate, and skyrocketing poverty rates. Obviously, there is more than one deep contradiction to such a policy.
But this is also probably the right decision because there is still no political consensus in Greece on what the root causes of the problem/s are, and what measures should be taken in response. Greek voters believed SYRIZA’s promises to redistribute wealth through higher government spending, despite all evidence to the contrary. In the months since SYRIZA has been elected, the population has become even more polarised, while government ministers and supporters have been making increasingly outlandish and often very offensive statements.
This is the time for every voter to make up their minds what they want, and what they believe in. Hopefully, they will be accurately informed as to the loan conditionality on the table, and will be able to understand its consequences.
It will also be important to understand what a “no” vote means:
  1. Immediate capital controls to prevent a bank run: these are now probably from Monday, 29 June;
  2. A cut-off of any new bilateral or multilateral funding for Greece, both in terms of loan refinancing as well as from EU structural funds;
  3. A massive smear campaign in European and international press: what has been seen until now will be child’s play compared to what is coming. Part of this will be deliberate misinformation, but most of it will be genuine frustration and misunderstanding by other European citizens;
  4. A likely political embargo. Greece and its elected representatives will be treated as pariahs by other the European Union Member States;
  5. Tourism cancellations: a bank run and credit controls at the height of the tourism season can only be considered a massive policy failure by the Greek government;
  6. A cessation or cancellation of export and import contracts involving Greek companies;
  7. The public sector budget will fall still further, as individuals and companies are unable to pay their already-high taxes;
  8. Payments of mortgages and loans will cease;
  9. A consolidation of power by SYRIZA and ANEL, given their control over the public purse. How long this can last is unknown.
I have covered the likely impacts of a Grexit here. I assume that we are still in the first scenario: Grexit but remaining within the Eurozone.
Less than one hour after the referendum announcement, lines were forming outside bank ATMs and gas stations across Athens. I was in one of them.

© Philip Ammerman, 2015

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